U.S. corporate pension funds turned less solvent in 2014 versus 2013, approaching risky levels based on regulations, as their liabilities ballooned by more than $180 billion, according to UBS analysts.
The solvency ratio of retirement schemes among Russell 1000 companies fell to 81 percent last year from 87 percent in 2013. Unfunded liabilities of these pensions grew to $426 billion or about 2.5 percent of nominal gross domestic product, they said.
"Consequently, dropping so perilously close to the 80 percent level should sound an alarm for the entire corporate pension space," UBS analysts Boris Rjavinski and Matthias Rusinski wrote in a May 27 research report released on Thursday.
The drop in solvency occurred even as the Russell 1000 companies put $55 billion into their pensions in 2014, compared with $60 billion in 2013, they said.
"Poorly" funded plans outnumbered "well-funded" ones by a ratio of nearly four to one.
Poorly funded pensions are those with solvency ratio of less than 80 percent, according to U.S. regulations, while well-funded pensions have solvency ratio above 95 percent.
Pension funds among aerospace, airlines and auto makers are among those most underfunded, the analysts said.
A potential result of the growing gap between pension assets and liabilities is company demand for long-dated Treasury and corporate bonds so pensions could meet their obligation on future payouts to retired workers, Rjavinski and Rusinski said.
They estimated U.S. private pension demand could hold down long-term U.S. bond yields by 30 to 40 basis points.